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Wednesday, April 08, 2009

Deceit as virtue in politics

Regarding the Obama Administration's "cap and trade" carbon emission reduction proposal, Tom Friedman of the Times writes...

Advocates of cap-and-trade argue that it is preferable to a simple carbon tax because it fixes a national cap on carbon emissions and it “hides the ball” — it doesn’t use the word “tax” — even though it amounts to one...
Deceit as a virtue! And Tom apparently agrees, as his only evident objection is, it isn't working:

opponents are not playing hide the ball anymore. In the past two weeks, you could hear a chorus of Republicans, coal-state Democrats, right-wing think tanks and enviro-skeptics all singing the same tune: “Cap-and-trade is a tax. Obama is going to raise your taxes ...
Damn truth-tellers! Fighting the plan by calling it a tax merely because it is! How low can one sink in politics?

Since the opponents of cap-and-trade are going to pillory it as a tax anyway, why not go for the real thing — a simple, transparent, economy-wide carbon tax?
Retreat to the classic Nixonian strategy: "Truth as a last resort". Well, Tom has a point, if deceit isn't working then what is there left to lose?

Reality is this: Efficient, well-designed carbon tax and cap-and-trade programs that reduce emissions to the same level will have the exact same effects as each other. The amount of revenue received by the government from carbon emitters through auctioning off emission permits that reduce emission levels to X will exactly match the revenue received from carbon emitters from imposing a tax on emissions that reduce them to the same level.

The reason for this should be easy enough to see. What reduces emissions from level X1 to level X is the increased cost of emitting that is dropped on emitters and collected by the government. In both cases the government imposes the same cost -- collecting the same amount of revenue from the same emitters to produce the same result -- the only difference being whether that revenue is called "auction fees" or "taxes" ... see much of a difference in that?

Well, there's no tax or economic difference in theory -- but there's a big institutional and political difference, in practice.

[] A carbon tax of a given amount per ton of carbon emitted is simple, clear and transparent. No big bureaucracy (that politicians can staff, influence and run in their own interest) is needed -- and a transparent tax makes it very difficult to hand out favors to political constituents. "Hey, how come they get a lower tax rate than we do?"

[] A carbon emission rights auction requires an entire auction "process". That means a bureaucracy to figure out how to do it the "right way", listening to lobbyists who represent various constituents who as a matter of "fairness" need the auction process adjusted for them to meet their unique circumstances, and so on.

And as a result of all the room for, and incentives driving, political intervention in the auction process, you can bet it won't be anywhere near as "efficient, well-designed" as a much simpler carbon tax, in actual practice.

OK, so which of the two options to reach the same objective do you think our rationally self-interested politicians will choose...

(1) A simple, transparent, efficient method that limits the politicians' ability to interfere in it; or

(2) A complex, opaque method that requires the politicians to manage it, thus making the politicians' "empathy" more valuable to constituent groups and their lobbyists, who become more highly motivated to, um, "earn" it ... regardless of how that degrades the efficiency of the program.

Why, they'd pick the option they have picked, #2, of course!

Because that's how they benefit their political careers the most. Which is good for them. Even though it means playing "hide the ball" with the fact that #2 really is just a much more complex and opaque version of #1, as Tom says.

Deceit as a virtue in politics.